Best defence: navigating FOCI

December 2025  |  FEATURE | RISK MANAGEMENT

Financier Worldwide Magazine

December 2025 Issue

Foreign investment plays a vital role in sustaining the US economy and industrial base. However, such investments are subject to scrutiny for any foreign ownership, control or influence – known as FOCI.

In the US, managing FOCI is a critical aspect of foreign direct investment (FDI) regulation. Its primary objective is to ensure that foreign entities cannot compromise national security or gain unauthorised access to classified information.

“If a foreign company wants to do business with the US government, FOCI becomes an immediate concern,” says Brett O’Brien, founding member of the National Security Law Firm. “In a nutshell, the government needs to ensure that it is protecting US national interests.

“A company owned by foreign individuals creates either a real or perceived suspicion that those individuals may have an allegiance to the country of their citizenship or national origin,” he continues. “Thus, they may be willing to violate confidentiality with the US in order to provide their country of citizenship or national origin with sensitive US information.”

FOCI operates within a broader regulatory framework that includes the Committee on Foreign Investment in the United States (CFIUS), the Bureau of Economic Analysis (BEA), the Agricultural Foreign Investment Disclosure Act (AFIDA), the Defense Counterintelligence and Security Agency (DCSA), and relevant state-level laws.

FOCI risks

The risks associated with FOCI are extensive. They include threats to national security, unauthorised access to classified data, cyber breaches, operational disruptions, restricted market access, and legal, regulatory and reputational consequences.

“Domestic businesses face operational risks such as the loss of government contracts, exclusion from certain opportunities, and the revocation of facility and personnel security clearances,” affirms David Vance Lucas, a partner at Womble Bond Dickinson (US) LLP. “Compliance risks include civil and criminal investigations, enforcement actions and penalties under CFIUS, BEA and AFIDA, as well as potential liability under the Espionage Act if unlawful intent is demonstrated.

“Foreign investors encounter similar risks, along with the possibility of financial loss if required to unwind an investment – as was recently ordered by CFIUS in the case of Juniper Networks,” he continues. “Pre-deal screening for FDI issues is essential to avoiding FOCI-related risks and mitigating operational and compliance exposure.”

Determining FOCI

Mitigating FOCI risk begins with identifying the ultimate beneficial owner (UBO) – the individual or individuals who ultimately own or control a company and benefit from its operations.

The DCSA assesses FOCI by examining several factors: the foreign interest’s history of economic or governmental espionage against US targets; its record of unauthorised technology transfers; its compliance with US laws and contractual obligations; the sensitivity of the information to be accessed; and the nature and extent of foreign ownership, including whether the foreign interest holds a majority or substantial minority stake.

Another key consideration is the nature of bilateral or multilateral security and information-sharing agreements, such as the political and military relationship between the US and the foreign government in question.

“UBO determinations should be made before entering into any definitive acquisition, investment or financial agreement,” adds Mr Lucas. “In addition to identifying the UBO, FOCI screenings should include checks against the US Specially Designated Nationals list and other denied parties lists to ensure no prohibited entities are involved.”

Expert legal advice is often essential. “While there is no ‘one size fits all’ solution, I would recommend reaching out to an attorney or law firm to advise on the steps needed to mitigate FOCI concerns,” suggests Mr O’Brien. “This allows companies to keep all classified information internal to the US subsidiary while expanding the foreign company’s access to the US government marketspace.”

Emerging trends

Although the US maintains an open investment policy and continues to welcome foreign investment, FOCI concerns are no longer limited to companies involved in sensitive government contracts. Increasingly, they affect a broader range of industries.

“FOCI related to controlled technologies such as semiconductors is an emerging concern,” notes Mr Lucas. “There is also growing scrutiny of real estate transactions by foreign investors near sensitive installations or agricultural land – at both federal and state levels.”

One sector experiencing heightened FOCI requirements is defence contracting. “Defence contracting is growing worldwide and I foresee a push for technology as companies try to gain market share in that space,” says Mr O’Brien. “Based on that assessment, we are likely to see more companies seeking to become defence contractors, thereby increasing the likelihood of further FOCI concerns.”

Expanding scope of scrutiny

As global investment patterns evolve and geopolitical tensions shift, the scrutiny surrounding FOCI is likely to intensify. Businesses must not only understand the regulatory landscape but also anticipate how future developments – such as artificial intelligence, quantum computing and space technologies – may reshape the boundaries of national security.

Navigating FOCI is no longer a niche concern reserved for defence contractors; it is a strategic imperative for any company with international ties and ambitions. Those that invest in robust compliance frameworks and proactive legal guidance will be best positioned to thrive in a world where transparency, trust and security are increasingly non-negotiable.

© Financier Worldwide

BY

Fraser Tennant